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When the overnight rate is up to 50 basis points below the bank rate ____.
A) the supply curve of settlement balances has a positive slope
B) the demand curve for settlement balances is vertical
C) the demand curve for settlement balances is horizontal
D) the demand curve for settlement balances has a negative slope
Answer: D
Diff: 2 Type: MC Page Ref: 409
Skill: Recall
Objective List: 17.2 Explain the market for reserves and the channel/corridor system for setting
the overnight interest rate in Canada
The quantity of reserves demanded rises when the ____.
A) bank rate rises
B) bank rate falls
C) overnight funds rate rises
D) overnight rate falls
Answer: D
Diff: 1 Type: MC Page Ref: 409
Skill: Recall
Objective List: 17.2 Explain the market for reserves and the channel/corridor system for setting
the overnight interest rate in Canada
The opportunity cost of holding excess reserves is ____.
A) the bank rate
B) the prime rate
C) the treasury bill rate
D) the overnight rate
Answer: D
Diff: 3 Type: MC Page Ref: 409
Skill: Recall
Objective List: 17.2 Explain the market for reserves and the channel/corridor system for setting
the overnight interest rate in Canada
A rise in the overnight rate ____.
A) decreases the opportunity cost of holding desired reserves
B) lowers the opportunity cost of holding desired reserves
C) increases the opportunity cost of holding excess reserves
D) lowers the opportunity cost of holding excess reserves
Answer: C
Diff: 1 Type: MC Page Ref: 409
Skill: Recall
Objective List: 17.2 Explain the market for reserves and the channel/corridor system for setting
the overnight interest rate in Canada